Self-organized agglomerations and transport costs

This paper investigates the impact of the shape of transport costs on the structure of spatial equilibria. We consider a racetrack economic model in which firms and workers freely locate on the continuous space of a circumference. We present “reasonably” weak conditions on the shape of transport costs under which continuous distributions of firms and workers are never stable equilibria. We also characterize conditions on the shape of transport costs under which discrete distributions are stable equilibria. The results confirm the idea that agglomeration of firms and workers in few cities is a natural outcome of economic interactions.